Business Context and Reporting Period
Company: TOP Ships Inc.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Date: November 9, 2009
Reporting Period: Third quarter and nine months ended September 30, 2009.
Business Overview: TOP Ships is an international provider of seaborne crude oil, petroleum products, and drybulk transportation services. The fleet consists of eight double-hull Handymax tankers and five drybulk vessels.
Key Financial Metrics
| Metric | Q3 2009 | Q3 2008 | 9 Months 2009 | 9 Months 2008 |
|---|---|---|---|---|
| Revenues | $25,153,000 | $71,094,000 | $83,582,000 | $220,418,000 |
| Operating Income (Loss) | $6,672,000 | $49,127,000 | ($2,473,000) | $53,771,000 |
| Net Income (Loss) | $329,000 | $41,640,000 | ($14,251,000) | $17,210,000 |
| Diluted EPS | $0.01 | $1.44 | ($0.52) | $0.69 |
| Cash & Equivalents (Sep 30, 2009) | $0 | N/A | ||
| Total Indebtedness (Sep 30, 2009) | $407.3 million | N/A |
Operational Metrics (Q3 2009):
- Fleet Utilization: 99.91%
- Average TCE Rate (Time Charter): $26,777 per day
- Average TCE Rate (Bareboat Charter): $22,700 per day
Material Changes vs. Prior Period
The Company experienced a significant contraction in financial performance compared to the prior year, driven by lower revenues and the absence of significant gains on vessel sales recorded in 2008.
- Revenue Decline: Q3 2009 revenues dropped 64.6% year-over-year. Nine-month revenues fell 62.1%.
- Profitability Shift: While Q3 2009 remained profitable, net income decreased 99.2% compared to Q3 2008. The nine-month period swung from a net income of $17.2 million in 2008 to a net loss of $14.3 million in 2009.
- Operating Loss: The nine-month period recorded an operating loss of $2.5 million, contrasting with an operating income of $53.8 million in the same period in 2008.
- Liquidity: Cash and cash equivalents decreased from $46.2 million at year-end 2008 to $0 as of September 30, 2009.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary & Unusual Items:
CEO Evangelos J. Pistiolis noted that Q3 2009 results included non-recurring charges of $1,386,000 related to lease terminations and one-off compensation for retiring board members. Excluding these items, adjusted net income for Q3 2009 would have been $1,715,000 ($0.06 per share).
Outlook:
Management expects to achieve similar TCE rates in Q4 2009 due to fixed contracts. The Company is currently in discussions with lenders to extend waivers for loan covenant breaches scheduled to expire in 2010 to 2011.
Risks and Contingencies:
- Covenant Breaches: As of September 30, 2009, the Company was in breach of loan covenants regarding EBITDA, minimum liquidity, adjusted net worth, and asset value cover. While waivers were obtained for prior breaches, new breaches remain unresolved.
- Liquidity Risk: With zero cash and cash equivalents, the Company relies on operating cash flows and potential asset sales. Failure to obtain covenant waivers could lead to loan acceleration, forced vessel sales at depressed prices, or additional collateral requirements.
- Market Conditions: The Company cites "dire market conditions" affecting the broader shipping industry.
Investor Verification Checklist
- Covenant Waiver Status: Verify the outcome of ongoing discussions with the five lending banks regarding the extension of waivers for EBITDA and liquidity breaches.
- Liquidity Position: Confirm the Company's ability to meet upcoming debt service obligations given the $0 cash balance as of September 30, 2009.
- Asset Sales: Monitor for any announcements regarding the sale of vessels to raise capital, which could result in further losses given current low market prices.
- Adjusted Earnings: Review the sustainability of the "adjusted" net income of $1.715 million for Q3, excluding the $1.4 million in one-off charges.
- Charter Expirations: Assess the risk of rate resets for vessels with charters expiring in Q1/Q2 2010 (e.g., Dauntless, Miss Marilena).